Enterprise Risk Management and Capital Management
This domain covers the Chinese risk-based capital regime and the ERM machinery that feeds it. Questions test the arithmetic of minimum capital aggregation, the three-pillar architecture of 偿二代, the qualitative requirements that adjust capital, and the governance structures - risk appetite, stress testing, ORSA - that regulators expect to see operating.
偿二代 (C-ROSS) three pillars
- Pillar 1, quantitative: 实际资本 − 最低资本 drives the ratios. 核心偿付能力充足率 must be at least 50% and 综合偿付能力充足率 at least 100%.
- 最低资本 = quantitative risk capital (insurance, market and credit risk aggregated through a correlation matrix that produces diversification benefit) + control risk capital + additional capital.
- Pillar 2, qualitative: the SARMRA assessment scores risk-management capability and feeds back into the control-risk capital charge, so weak governance literally costs capital.
- Pillar 3, disclosure: quarterly and annual solvency reports, plus the 风险综合评级, where a rating of B or better is required to avoid supervisory measures.
- 偿二代二期 rules were issued in December 2021 and apply from 2022, tightening recognition of assets and introducing ORSA expectations.
ERM mechanics
- A risk appetite statement with tolerances and limits cascaded to business units; risk registers; scenario and reverse stress testing (rate decline, catastrophe, mass lapse).
- 保险保障基金 provides industry backstop funding; reinsurance acts as a capital substitute and must be reflected consistently in capital and reserving.
Worked example
Standalone minimum capital is 100 (insurance risk), 120 (market risk) and 40 (credit risk). With illustrative correlations of 0.25 between insurance and market, 0.10 between insurance and credit and 0.15 between market and credit, aggregated quantitative capital = √(100² + 120² + 40² + 2(0.25)(100)(120) + 2(0.10)(100)(40) + 2(0.15)(120)(40)) = √(10,000 + 14,400 + 1,600 + 6,000 + 800 + 1,440) = √34,240 ≈ 185.0. The diversification benefit is 260 − 185 = 75. Adding control risk capital of 12 and additional capital of 5 gives 202.
Traps that cost marks
- Summing standalone risk capitals without the correlation matrix.
- Equating 实际资本 with net assets; recognised assets and liabilities differ from accounting carrying values.
- Using total rather than core capital for the 50% test.
- Forgetting that a poor SARMRA score raises the control-risk charge.